We received a K1 and ordinary income in box 1 and box 16d is a number that is significantly higher than the ordinary income amount. Can you explain what it represents?

[Anita01]

Is the k-1 for a Partnership or an S corporation?

[sheppton_pa]

S Corp..

[Anita01 · Accepted solution]

Box 16d represents s distribution of assets.  Distributed assets are are not income to you until you sell your distributed share, but they can reduce your cost basis in the Corp.

If, for example, if your S Corp owned a warehouse , it might distribute that asset to one or more shareholders rather then selling it.  If your basis, or cost in the Corp included that asset originally, the distribution would affect the cost basis you now have in your Corporation for the time when you might sell your  shares to another entity.

Ordinary income is that year's income that was derived by conducting the regular business of the partnership.

Another very simple example might occur if the S Corp originally purchased and now operates an antique store.  Ordinary income stems from the  operation of the store.  The owners might, though, have  a rare antique that they choose to distribute to shareholders rather then hold as inventory and sell in the store.  That distribution doesn't change the year's profit from the store but would change the basis of the shares owned by the shareholders.

[sheppton_pa]

Thank you so much..  not to get into too much detail my husband own with family. He owns 30 percent. We don't see the books at all but my husband is not complaining about his ordinary income amount at this point and just trying to keep the oiece( it's been a long hard road and I know many may not agree but it's just easier).

Anyhow I was asking as the 16d is roughly 200k higher than the ordinary income and wasn't sure. So if I'm understanding, if his shares still show 30 percent on k1 and the 16d number increases, it's that number payable to my husband when he dissolves  his share of the company?

[Anita01]

It's almost impossible to give you a decent definite response without knowing many details about the distribution, it's fair market value, etc.  It may be fine to have no access to the books, but it would be very beneficial to just have access to the accountant preparing your k-1s just to ask him what this distribution might mean to your own tax return.  
You might even want to see a CPA or EA for yourselves, so that person can tell you exactly what information you need and make sure you have at least that much data, and to help you understand what happens when you sell and what basis you should be tracking for yourselves.  This S Corp apparently involves large sums of money and it would be well worth a small amount to discuss these things with a qualified person to whom you can give all the necessary details.